Despite the looming $600 billion plus pump from Uncle Benjamin, that does not imply that all things are necessarily a “thought free” buy. Very specifically, I would still avoid natural gas here, and by extension coal.
I was thinking about this the other day, wondering if some of my about-to-be-deployed 25% cash position should be flung into old Jake Gint favorite NRP. It’s a coal royalty partnership that dishes out 10% annually. Pretty sweet…
But the answer I came to is, “no”.
Natural gas is experiencing pricing issues because of storage space problems. If you don’t have space for extra gas, you don’t have space to fill by bidding gas up in price. If you can’t bid gas up in price, then the only bid for higher prices is coming from things like UNG that have limited ability to impact final sold prices.
Which in my eyes means that natural gas could still crater into Christmas on the backs of a very mild winter and overproduction.
If natural gas should lose the bid, energy companies are going to have a field day – we’re talking the-greatest-fucking-Christmas-season-ever, kind of time, as they meet their quotients on ever cheaper fuel.
And by extension, coal would continue to be mutilated without exception as plants continue to convert to natural gas generators.
Thus, even though QE3 is the greatest announcement ever if you just want to buy shit and check your brain at the door, I could see lots of people taking a stick in the eye by jumping the gun and buying into some select commodities. I’m not short these commodities, mind you; just tastefully ignoring them.
The play on QE3 is most definitely found in the precious metals. Even some of the manufacturing metals could be risky as I do not foresee QE3 doing much to help real demand for goods – look what happened to Europe’s manufacturing sector after the LTRO’s and ESM/EFSF were put into effect. It would suck to be long steel only to see the sector shed 30% more of gross demand from here.
No, no, stick to silver and gold. And be prepared mentally for the day when shorting oil and the other manufacturing commodities is the right move (but not yet).
5 Responses to Not All Commodities Are Created Equal
I am having similar thoughts. Also QE may inflate paper assets and cause some energy inflation but may not do much to really help the underlying economy. And I doubt a 2nd 0bama term will be kind to coal.
Do any of the PM mining companies look particularly good to you here?
That’s sort of out of my circle of competence – for the moment. I haven’t much looked at the miners themselves, and I’d say you have a better source in the form of the good Senator.
Yea – already a big fan of the good Senator – actually added your tab to my daily “must read”list during his recent black out.